The views of this article are the perspective of the author and may not be reflective of Confessions of the Professions.
Individual business owners always have the misconception that 401(k) plans are for large businesses. If you are a freelancer, sole proprietor, entrepreneur, or an independent contractor you can opt for a Solo 401(k) and save for your retirement. A Solo 401(k) plan allows you to enjoy financial flexibility at affordable costs while providing the benefits of reduced taxable income, flexible loan options, and easy access to the funds.
What Factors Should You Consider While Selecting A Solo 401(K) Provider?
Here is a list of factors, provided by Ubiquity, that you need to keep in mind when setting up your plan and choosing a Solo 401(k) plan provider:
Plan Cost: Solo 401(k) plans usually are free from any asset management charges or trading fees. It is recommended to choose a service provider who provides transparency and a low-cost set up.
Ease of Set Up and Plan Management: It is suggested to select a Solo 401(k) provider who can offer an online user-friendly dashboard that can help you in managing your plan, long-term investments, provide online statements and reports, and so on.
Quality Support Service: Besides plan management, your service provider should also have a dedicated customer service staff who can assist you with filling out your tax forms and answer your plan-related queries.
Flexibility: It is also recommended to choose a plan provider who has loan flexibility, Roth contribution options, a wide investment range, and offers long-term sustainable investment options.
Benefits of a Solo 401(k)
If you select a Solo 401(k) plan, you will be contributing to the retirement fund both as an employer and an employee. Some of the key benefits that a Solo 401(k) plan provides are:
Huge Tax Deductions: The plan has the highest contribution limits that help you receive huge tax deductions by allowing you to maximize your contributions. If you do not intend to be the sole employee of your business this plan is best for you if you want to enjoy huge tax deductions.
No Immediate Taxes: The plan does not require you to pay immediate taxes. By opting for a ‘Traditional’ Solo 401(k), you can defer the taxes that you need to pay during withdrawal. This allows you to reduce your tax burden for the financial year by deducing a percent of your taxable income. If you decide to opt for a ‘Roth’ contribution while setting up the plan you can claim your retirement contributions or 25% of your net self-employment earnings depending on the lower amount. If you are worried that tax rates may increase in the future you also have the freedom to pay your taxes now.
Loan Flexibility: It is recommended that you should not touch your retirement funds and allow them to grow. However, if you require money the Solo 401(k) provides you with the flexibility to borrow from your funds. The plan allows you to borrow 50% of the plan value or up to $50,000 depending on the lower amount. This makes the plan most suitable for entrepreneurs or single business owners who may have limited funds in tough financial situations.